Africa: ‘Boost Production to Take Advantage of AfCFTA’

Many African Countries —

including Zimbabwe — have pinned their hopes for economic revival on the African Continental Free Trade Area (AfCFTA) agreement that came into force on January 1, 2021.

The AfCFTA — which was initially set to commence on July 1, 2020 but delayed due to the coronavirus — seeks to boost intra-Africa trade.

As of December 2020, 54 countries had signed the agreement, while 34 countries have deposited their instruments of ratification, according to Wamkele Mene, the AfCFTA secretary general.

If implemented fully, the trade pact could boost regional income by 7 percent or US$450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035, according to the World Bank.

A report from the World Bank shows that Zimbabwe and Côte d’Ivoire — where trade costs are among the continent’s highest — would see the biggest gains of the AfCFTA, with each increasing income by 14 percent.

But economists argue Zimbabwe needs to put its house in order first for it to benefit.

Zimbabwe used to have a robust manufacturing sector, which would have put it first in the queue of countries that could benefit from the AfCFTA.

Decades of mismanagement, however, have created an economy of importers rather than producers.

The Southern African country relies on imports of nearly everything from furniture, chemicals, clothing to even toothpicks from its neighbouring country South Africa and China.

Lack of productivity and competitiveness

Mr Prosper Chitambara, an economist in Harare, says that Zimbabwe will not immediately benefit from the trade pact.

“We have low capacity in all key sectors of the economy and in particular the agricultural and the manufacturing sectors. (Our) competitiveness and productivity gap is huge and this renders us incapable of competing with the rest of the African nations,” he says.

He adds that the country needs to strengthen the industrial sector and address challenges in the agricultural sector.

“We need to increase investment in critical productivity enhancement sectors like in infrastructure and in particular irrigation, as well as transport and energy infrastructure. These are the key enablers to unlock value within agriculture, industry and the rest of the economy,” mr Chitambara explains.

Economist Mr Victor Bhoroma says Zimbabwe’s exports are mostly raw materials and that local industries are not competitive regionally.

Manufacturing’s discontents

“Zimbabwe’s low manufacturing capacity utilisation means that local industries cannot compete with regional peers such as those from Zambia, South Africa, Angola and Namibia that have enjoyed longer periods of economic and currency stability, and policy consistency,” he explains.

Mr Bhoroma says the major setbacks for Zimbabwe to benefit from the trade pact include low industrial capacity utilisation, high cost of doing business and complex taxation procedures, policy inconsistency –especially on monetary reforms — inefficient foreign exchange policies and porous borders that make it hard to prevent smuggling.

“(There is need to) implement a market determined managed float exchange rate to remove arbitrage opportunities that threaten primary production locally in favour of importing finished products,” he says.

“Monetary policy consistency is key to stable production and export capacity.”

Zimbabwe National Chamber of Commerce (ZNCC) president Mr Tinashe Manzungu says for liberalisation of trade to bear fruit, African states must overcome the trade constraints.

“These supply constraints include weak infrastructure (and) time consumed procedures at customs borders,” he explains.

Creating opportunity

The AfCFTA offers Zimbabwe’s an opportunity to recover from the economic turmoil caused by the coronavirus.

Zimbabwe’s economy shrank by more than 6 percent in 2019. Mr Manzungu says that while the global economy is in turmoil due to the Covid-19, the creation of a vast regional market will help Zimbabwe diversify its exports, accelerate growth and attract foreign direct investment.

Confederation of Zimbabwe Industries president Mr Henry Ruzvidzo says the AfCFTA will encourage inter-Africa trade, which is low at the moment.

“We have the opportunity to leverage on our location, resource endowments and considerable manufacturing experience and know-how to get a head start in the race,” he says.